SMM Morning Comments (Mar 10): LME and SHFE Base Metals Closed All with Losses amid LME Intervention

SHANGHAI, Mar 10 (SMM) – Shanghai and LME base metals all closed in the negative territory and gave up previous gains after LME stepped up to regulate the market and try to bring it back to rationality.

LME copper dropped 3.46%, aluminium slumped 10.32%, lead lost 7.56%, and zinc slumped 10.8%.

SHFE copper fell 1.51%, aluminium dropped 2.92%, lead lost 1.58%, and zinc slid 3.44%.

Copper: LME copper opened at $10,116/mt yesterday, and then rose slightly to $10,142/mt. At last, the prices closed at $9,977/mt, down 3.46%. The trading volume was 13,000 lots, and the open interest reached 255,000 lots.

SHFE 2204 copper contract opened at 72,000 yuan/mt in overnight trading, then fell at 71,520 yuan/mt after reaching a high level of 72,460 yuan/mt. At last, the prices closed at 71,650 yuan/mt, down 1.51%. The trading volume was 55,000 lots, and the open interest reached 120,000 lots.

On the macro front, in order to cool down the tense Ukraine crisis, Ukrainian President Zelensky considered making some compromises to end the war. Meanwhile, international crude oil futures plummeted overnight, which was affected by the news that the United Arab Emirates and Iraq supported the supply. With the market risk aversion reduced, copper futures prices fell sharply.

In the spot market, copper prices fluctuated violently yesterday, falling nearly 2,000 yuan/mt. Although the downstream consumption was warmed up and the market inventory was tight, the imported goods could hardly be shipped to domestic when the SHFE/LME price ratio was slightly repaired in a large amount in the short term to increase domestic spot premiums. However, the prices slightly declined when some profit-taking was sold out. It is expected that the premiums will remain at high levels in the later stage, but the overall increases will be limited in the backwardation structure. LME copper will trade between $9,920-10,200/mt today; SHFE copper prices are expected to move between 71,300-72,000 yuan/mt. Spot premiums are likely to fluctuate between 100-200 yuan/mt.

Aluminium: Overnight, the most-traded SHFE 2204 aluminium contract opened at 21,825 yuan/mt, with the highest and lowest prices at 21,825 yuan/mt and 21,205 yuan/mt before closing at 21,300 yuan/mt, down 640 yuan/mt or 2.92%.

LME aluminium opened at $3,680/mt on Wednesday and hit a high and low of $3,680/mt and $3,300/mt respectively before closing at $3,301/mt, a drop of $380/mt or 10.32%.

From the perspective of the supply side, the resumption of production at domestic aluminium smelters has accelerated. With the steady growth of domestic aluminium daily output in March, the aluminium output is expected to total 3.3 million mt, and the operating capacity in May is expected to return to the level in the same period last year. The demand side was suppressed by high aluminium prices, and the inventory remained high. After two days of sharp declines in the futures prices, the downstream consumption did not improve significantly. It still takes time for end demand to recover. On the whole, in the absence of bullish factors, the price correction is normal.

Lead: With the LME stepping up its intervention in abnormal changes in capital, base metals generally erased gains. LME lead opened at $2,535.5/mt on Wednesday and took a free-fall to $2,350/mt before closing at $2,360/mt, down 7.56%.

Dragged down by falling LME lead, the most-traded SHFE 2204 lead contract fell to a low of 15,195 yuan/mt after opening lower at 15,360 yuan/mt overnight, and then stabilised at around 15,300 yuan/mt before closing at 15,290 yuan/mt, down 1.58%. Open interest fell by 617 lots to 43,145 lots.

Zinc: LME zinc closed at $3,840/mt, down $465/mt or 10.8%. LME inventory stood flat. On the macro front, Germany officially opposed sanctions on Russia, and will not stop importing Russian oil either. As such, LME zinc slumped. LME zinc is expected to move between $4,020-4,070/mt.

The most traded SHFE 2204 zinc contract closed at 25,230 yuan/mt, down 900 yuan/mt or 3.44%. On the fundamentals, the export window is wide open based on the SHFE/LME price ratio. But domestic consumption has been slow in recovery, evidenced by the still rising inventory even after the Winter Olympics ended. SHFE zinc is expected to move between 25,000-25,500 yuan/mt, and Shuangyan zinc is expected to be in discounts of 50-60 yuan/mt.

Overnight, the National Energy Bureau: to promote the first batch of 100 million kilowatts scale wind and photoelectric power projects as soon as possible, and accelerate the launch of the second batch. China CPI in February was flat; while the YoY growth of PPI dropped, and its MoM growth recorded a positive reading. Tsingshan Group: it has obtained sufficient spot nickel for delivery; analysis said malicious short squeeze "was only a hoist with their own petard ". Russia and Ukraine foreign ministers both arrived in Turkey, and will participate in this Thursday's Turkey-Russia-Ukraine trilateral talks.

Nickel: The long-short game in nickel market continues. News from all sides is constantly fermenting, and the nickel market is in turmoil. After closing with limit up for three consecutive days, SHFE announced that it had suspended the trading of several nickel contracts with relatively large trading volumes except for contract 2203, 2208, 2210, and 2211. Due to the influence of market news, the remaining contracts reversed and dropped to the limit down in the overnight trading. Accordingly, the spot market was slack.

In the spot market, traders held strong wait-and-see sentiments amid the chaotic transaction. Many enterprises that price imported raw materials based on LME prices indicated that the high losses could no longer be borne. Under the money game, it not only hurts the losing party hard but also greatly harms the entities in the global nickel market. SMM believes that the nickel future market is still not stable in the short term, and the spot may remain sluggish. What is important now is to wait for the market to stabilise.

Tin: Overnight, SHFE tin pulled back sharply with the exit of capital and then fluctuated narrowly above 340,000 yuan/mt. The domestic tin inventory under warrants increased steadily, while the overseas inventory remained stable. The big fluctuations in spot prices prompted downstream buyers to stand on the sidelines. The market has become more rational following the big fluctuations in tin prices. SHFE tin prices may hover around the current levels.